Stocks ended a troubled week of trading in a broad rally, although gains were insufficient to deter the S&P 500 from its first weekly loss in the past five years.
The benchmark index rose 1.1% on Friday, recovering all losses from the previous day. It posted a 0.1% loss for the week. Profits were broadly shared by nearly all sectors of the index. Tech companies made up a large part of the rally, as did banks, communications stocks, and companies that rely on consumer spending. The utilities and consumer staples sectors closed slightly lower. The yields on government bonds rose many times over.
Traders focused on corporate profits from big names like Intel, American Express, and Honeywell. The shares of Kimberly-Clark, maker of Huggies diapers and other consumer products, fell the hardest since last October after the company reported disappointing results.
Corporate earnings have been mostly positive, but investors are weighing economic growth against the threat of the pandemic and concerns about changes in tax policy.
“The result is very good” said Chris Gaffney, President of TIAA Bank World Markets. “That will support higher stock prices along with the low interest rate environment we are seeing.”
The S&P 500 gained 45.19 points to 4,180.17. The Dow Jones Industrial Average rose 227.59 points, or 0.7%, to 34,043.49. The tech-heavy Nasdaq climbed 198.40 points, or 1.4%, to 14,016.81.
Smaller company stocks outperformed the broader market. The Russell 2000 Index rose 39.24 points, or 1.8%, to 2,271.86.
Banks made solid profits as bond yields rose, which enabled them to charge more lucrative interest rates on loans. The 10-year Treasury yield rose to 1.56% from 1.55% late Thursday.
Wall Street has been in rally mode for the past few weeks as the introduction of COVID-19 vaccinations, massive support from the US government and the Federal Reserve, and a series of encouraging economic data set expectations for a stronger economy and solid corporate earnings growth fire this year.
About a quarter of the S&P 500 companies have reported quarterly results so far this earnings season. Of these, 84% made profits that exceeded Wall Street estimates, according to FactSet. The result also exceeds analysts’ forecasts many times over the average and is 23.6% above estimates, compared to the 5-year average of 8.9% according to FactSet.
Traders on Friday offered shares of several companies that reported quarterly results that beat Wall Street estimates. Barbie maker Mattel was up 0.8%, Snap 7.4% and Boston Beer 3%.
Some quarterly testimonials failed to impress investors. Intel fell 5.3% after the company announced late Thursday that the ongoing chip supply shortage would continue for some time. The shortage of semiconductors has affected other industries as well. Automakers like Ford and General Motors had to stop production because of missing chips.
American Express was down 1.9% after the company saw a 10% year-over-year revenue decline as many of its customers stopped using their cards for travel, entertainment, and dining. The company called in 2021 a “Transition year” and did not provide an outlook for the year ahead due to uncertainty about when travel and dining would be returning in the US and worldwide.
Kimberly-Clark fell 5.9% on the biggest decline in the S&P 500 after reporting disappointing financial results for the first quarter.
There will be another busy period next week, with 181 S&P 500 companies including Tesla, Starbucks, Microsoft and Amazon.com reporting results.
Investors are also weighing the impact of President Joe Biden’s plans to introduce higher capital gains taxes to fund increased government spending and help the economy recover from the pandemic. Bloomberg News reported on the upcoming proposal Thursday afternoon, citing unidentified sources.
Higher taxes on capital gains would make stocks marginally more expensive in the long run, which could affect the overall valuation of the market. Although millions of Americans have their pension funds in the stock and bond markets, most stocks are owned by the rich.
Shares closed lower Thursday after reports of Biden’s proposed tax policy changes, but the news shouldn’t have surprised investors, Gaffney said.
“It was an election promise” Said Gaffney. “The sell-off was excessive and so we’re up again today.”
Bitcoin price fell 2% to $ 50,675 on Friday, according to tracking site CoinDesk. The cryptocurrency traded for up to $ 63,000 just last week.
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